Drawing on our third year of a pandemic, the legal changes set to take place in the property sector in 2022 look to provide further control on building and development and start to solve some of the problems seen as a result of the pandemic itself. We take a look here at some of the highlights.
Building Safety Bill
The bill, which is currently before the House of Lords, will create a big change for those working in property development.
As drafted, the bill will extend the limitation period for claims by residents against builders to 15 years, require certain developers to join a New Homes Ombudsman scheme, and introduce a code of practice identifying the standards of conduct and levels of workmanship expected from a member. Furthermore, it looks like the bill could have retrospective effect to make developers liable in respect of defects in buildings built within the last 30 years.
The aim is to provide a forum for owners of newly built homes to seek redress against developers and builders and, therefore, strengthen the regulation on the property development industry. However, these changes have also raised concerns about the increased liability on the construction industry.
For now, it remains to be seen what the reality of the bill will be as it goes to its second reading in the House of Lords on 2 February 2022. No doubt, it is a bill to which developers will need to pay close attention.
Land control register
In 2020, the government consulted on creating a register of contractual control agreements such as rights of pre-emption, options, and other conditional agreements. The aim was to increase the public's understanding of who exercises control over land.
These types of agreements are already registrable at the Land Registry, which is open to the public. However, there are different methods of doing so depending on how a developer chooses to protect its interest. The use of unilateral notices, for example, means a developer does not have to register a copy of the agreement, and means that very little useful information can be gleaned from the entry on a property’s title. The reason for this is to protect commercially sensitive data such as pricing, and to maintain a competitive advantage by keeping the agreement confidential. For these reasons, developers will likely have concerns about being obliged to disclose detailed information to the public.
A response to the consultation is yet to be issued but this may well arrive in 2022.
Residential Property Developer Tax
The new Residential Property Developer Tax (RPDT) will apply from 1 April 2022 and will apply to residential developers’ annual profits exceeding £25 million at a rate of 4%. There are various developers who will be exempt from RPDT, such as non-profit registered providers of affordable housing, purpose built student accommodation providers and providers of care homes for the elderly and children.
The government has claimed that RPDT is not a long term tax and is only intended to raise £2bn over the next 10 years. However, there are no provisions in the legislation to automatically repeal the legislation at a certain point in the future so residential developers will have to cross their fingers and wait to see.
Review of commercial leasing law
Last year, the government promised to undertake a review of commercial landlord and tenant law. The review was to “consider how to enable better collaboration between commercial landlords and tenants and also how to improve the leasing process to ensure our high streets and town centres thrive as we recover from the pandemic and beyond”. Apparently, it was to consider, amongst other things, security of tenure for business tenants and different models of rent payment.
The review has still not launched but could do so in 2022. Once launched, it is expected to be an exercise in making existing law more tenant friendly following years of high street decline and following the aftermath of the pandemic. Suggestions as to what the government will look to encourage include shifts towards both upwards and downwards rent reviews (rather than upwards only) and turnover linked (rather than fixed) rents. It will be difficult to reconcile landlords’ needs for decent returns on their investments and tenants’ needs for more flexibility in a difficult economy. Whichever way the review goes, it could see the introduction of some significant changes to the commercial lettings market and will be closely watched by all concerned.
Commercial Rent (Coronavirus) Bill
This is another bill which is sitting before the House of Lords. It aims to address the backlog of unpaid rent on commercial premises that has accrued during the ongoing coronavirus pandemic and is intended to become law in March 2022.
In summary, the bill applies to arrears relating to the period 21 March 2020 to 18 July 2021 where government restrictions required the closure of all or part of a business or premises. Essentially, arrears that fall within this criteria will be ring-fenced with landlords prevented from taking steps to recover them. Instead, such disputes can be put through an arbitration process.
This protection for tenants on qualifying arrears will end after a period of six months from the passing into law of the bill (or, if later, until the end of any arbitration procedure commenced within that period).
Whilst this protection for tenants affected by the pandemic is generally welcome, it will be of little practical help to those tenants with substantial property portfolios or those whose financial problems cannot be solved by simply ring-fencing a limited amount of arrears. Arguably, the bill is catered for tenants with single or a small number of leasehold premises, who are now back on their feet, but would benefit from assistance in settling past, covid-related arrears.
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